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The Bank of Facebook: How will Facebook interact in the global economy?

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What follows is a guest post by Venessa Miemis…I’ve asked her to share insights from a developing research project she’s currently leading, The Future of Facebook Project. I recently took part in the project as I believe this discussion is more relevant than we currently imagine.

There has been much speculation recently about the role Facebook Credits could play in becoming a global virtual currency, and even the possibility of Facebook becoming a bank. In many ways, it already is becoming a bank – just not in the traditional sense. Facebook is harnessing the power of the social graph and has certainly adopted an expanded definition of what ‘currency’ means. It’s time for the rest of us to hop on board.

As I’ve been conducting research for The Future of Facebook Project, the experts and thought leaders interviewed shared some compelling views about the evolution of virtual currencies, and Facebook’s potential role in their development. A big takeaway is that while we typically associate currency directly with money, the rise of the social web and quantification is shifting that reality to become more inclusive of kinds of capital that were formerly intangible.

Money is a tool we use for arms-length transactions, where there isn’t an assumption of any kind of relationship or trust between parties. But as data is being mapped at an accelerating rate – from self-quantification, to the contextual and relational data about our location and interactions, to our preferences and opinions, to our exchanges and transactions – we are being granted access to a much richer base of information in our decision-making toolkit.

What this means is that money isn’t the only kind of currency that can facilitate a transaction anymore. Trust networks are able to be tapped for recommendations and referrals, while predictive analysis algorithms can suggest the kinds of people, products, services, or events that would resonate with our personalities or value set. A new set of filtering tools are emerging that are shaping where we direct our attention and resources, namely intentions and actions.

These contextual clues around data become currencies in themselves, as they give us more information in order to make a choice or decide who to trust. Below are three examples of currencies that are having an impact on the formation of a new economic paradigm and redefinition of how we define, generate and exchange value: Facebook Credits, online identity, and reputation.

Credits as Currency

Facebook Credits are a virtual currency used within Facebook for the purchase of virtual goods related to applications managed on the Facebook platform. They’re like tokens you’d use to play games at Chuck E. Cheese’s – great for casual entertainment, but not particularly threatening to the real world economy. Yet.

What happens when individuals and companies become more comfortable with the idea of accepting virtual currencies in exchange for various types of interactions, goods or services?

“Increasingly as we move later into the decade, physical currency will be harder to differentiate from virtual currencies like Facebook Credits,” said Brett King, author of Bank 2.0. “We’ll start to see a new economy emerging through social media where virtual currencies will be a very real part of the way people trade and sell information, collaborate on ideas and value various products and services.”

In the near term, we’re likely to see retailers find creative ways to use Credits to entice people to interact with them, evangelize their brands, and gain customer loyalty. For example, every time you take a poll, watch an advertisement, or tell your friends about a purchase you made, you could receive Credits from that company that would then be redeemable for goods or discounts.

“We may see a kind of gamification of the real world take place through Facebook Credits, where a variety of outside vendors, businesses, and service providers can give us Facebook Credits, enable us to pay with Facebook Credits, and reward us with Facebook Credits for taking actions that they want us to take,” explained Nova Spivack, a technology entrepreneur and founder of Lucid Ventures.

In the longer term, Facebook Credits could become truly disruptive by becoming a currency for peer to peer lending, microtransactions, and for usage by the unbanked in emerging markets around the world. For instance, imagine the next time you clicked the “like” button for that social activism campaign you support, you could also add a small donation to the cause via your Credits account. Or what if Facebook evolved to have a functionality like Zopa or Lending Club, allowing you to directly lend and borrow with other Facebook users, and earn a great rate of interest. Extend that one step further to Facebook offering an entire mobile based money transfer system, something like M-PESA, which could then create a simple mechanism for international microfinance. If Facebook goes this far, Credits could quickly face regulatory scrutiny if they actually influence or devalue currencies in other markets.

As venture capitalist Eghosa Omoigui posited, “I suspect that Facebook may eventually have to create a trading platform that allows them to constantly mark-to-market what those Credits look like.”

The possibilities here are only limited by our ability to extrapolate out scenarios of what happens when transactions are made easy, secure, and frictionless. So Credits are a clear example of an emerging virtual currency that could have some far reaching implications, and will certainly face new regulatory challenges as well as a new set of competitors as they expand their offerings. But are there other currencies that Facebook is creating within its ecosystem?

Identity as Currency

How do you construct your online identity, and where is that information stored? Does it matter? It matters more than we know.

Every time you upload a photo, make a comment, add a friend, click a link, or make a purchase, that data is being harvested to create a map and a simulation of you. This is tremendously valuable information, and Facebook gets that. It hasn’t been by mistake that they’ve created a simple go-to portal to the social web, where logging in via Facebook Connect gives access to any number of other sites and services.

By analyzing even slices of this data, a wealth of information can be extracted and predicted about you. As a related example, Google vice-president Marissa Meyer was said to have claimed at this year’s SXSW festival that credit card companies can look at spending habits and predict with 98% accuracy, two years in advance, when a couple is going to divorce. Interesting. I wonder what Facebook is able to predict, and how that information can be served up to advertisers.

If the trend continues where logging in via your Facebook profile is the simple method for verification, some speculate this could lead to Facebook evolving to being an actual utility for identity. We’re already seeing companies advertising themselves through their Facebook profile ( It seems possible that Facebook users could do the same. After all, if people are willing to trust sensitive data to Facebook, companies could use that info to offer better rates on car or health insurance, or help you secure a loan, via the platform. While this could seem convenient for the average user, it does carry serious implications in terms of how governments will respond.

“[Identity] will become the battleground within which this entire learning will take place, because today all the artifacts of a human being belong to physical and logical governments, and not to social networks. But the ability to move any form of asset between the virtual world and the physical world needs a commonality of understanding of identity,” said JP Rangaswami, Chief Scientist for

The discussion around who owns your data and online identity and why it matters hasn’t really hit the mainstream yet, though there are communities like the Personal Data Ecosystem Consortium that are pushing for individual ownership, open standards and interoperability. A person’s identity is highly valuable information, and some would argue that despite the convenience of having a third party own that data, it rightly and ethically belongs to the individual. In the meantime, Facebook is playing a strong role in how we use identity on the web, and what information about ourselves and our social graph is shared every time we log in and interact.

Reputation as Currency

If you’re familiar with services like Klout and PeerIndex, you’re aware the task of quantifying reputation, authority and influence online is well underway. Just as a positive score in your eBay account matters if you plan to continue doing business there, we’re on the verge of having robust social scoring metrics that will become increasingly important for businesses and individuals to consider.

For example, when searching for a product or service, not only will we see a range of comparisons between companies with similar offerings, but also how our social network perceives the performance and quality of that brand. We can already see which of our friends “likes” a particular website that happens to display the Facebook social plugin in their sidebar. When the opinions about a brand can be displayed more robustly, we’ll know not only that you “like” a brand, but why. This gives information on both sides – the reputation of the brand, and the values of the individual. So if I choose to only interact with brands that have project both intentions and corresponding actions of what I consider “good,” which could include sustainable business practices, financial transparency, social responsibility, and, dare I say, corporate ethics, only those with a reputation that falls within that spectrum will make it through the filter in my stream.

As Brett King pointed out, “Social metrics, and the use of platforms like Facebook will have very real feedback in respect to the valuation of a brand economically, and obviously that will have an effect directly on revenues that are possible for providers in that space. So unless you’re playing in the social brand space, unless you’re engaged in the conversation, your social metrics are gonna be affected in a negative way, and that will have an effect on revenue, profitability, and the value of your brand.”

The power of this kind of sentiment analysis around brands, issues, events, people, or topics of any kind can’t be underestimated. As these metrics become more granular, it becomes easier to to make purchasing decisions and support initiatives that are more fully aligned with our values. One’s reputation and social standing, and the way they are perceived based on their words and their actions, are most certainly a currency.

Beyond its functionality for how we interact with brands, and perhaps even more interesting to consider, is how this reputation currency could impact peer to peer relationships and potential business partnerships. I’ve always felt rather disappointed in the type of information that passes for a Facebook profile. Sure, you can show where you went to high school and the kinds of entertainment you like, but none of it is particularly useful in terms of finding ways to generate economic value together with others.

Facebook has the opportunity to create a marketplace for intention, innovation, and entrepreneurship, if it expands the degree to which an individual can express their human capital and find others with common interests or goals. When I am able to express the types of skills I possess, resources I have access to, my intellectual capital, my relationships and social connections, and the types of projects or business ventures or causes with which I would like to be involved, a whole new dimension of interactivity will emerge. When others can vouch for the quality of my work or my knowledge or expertise, the kind of robust profile and reputation that then exists is incredibly valuable for me and for the potential economic opportunities that I can get.

None of these examples should seem like a stretch. In some ways, this is the next logical step in the evolution of Facebook. As technology writer Kevin Kelly said, “What we know from our very short history of living online is that community precedes commerce; there’s no commerce without community. What Facebook is doing is sort of blowing up the community to be 500 million or even a billion very soon. When we have a community of a billion, that means that the potential for commerce is enormous, is immense, and we’ve never seen that before.”

To me, that statement is speaking to us as the users, and how we can potentially be interacting with each other, not necessarily how we can interact with corporate entities or brands. Facebook has corralled us all within its walled garden, and created a place to share photos with friends, keep up on events, and perhaps click some ads. But the opportunity to use sentiment and predictive analysis to actually facilitate the connection of people around common desires and goals could be truly transformative in accelerating the rate of social innovation and job creation.

It’s not a matter of if this will happen, but when. Users already pump tons of data into Facebook about their preferences and tastes – it just hasn’t quite been served back to them in a way that’s economically useful. But if and when they do, it’s going to create a marketplace where your reputation is going to be quite important in getting prospects for what may be called ‘the future of work.’

New Currencies = New Banks

I hope this provided some food for thought on the evolving definition of currency and what we may consider a bank. We’re making formerly intangible and invisible things transparent, measurable, and tradeable, and that opens the door to a lot of new possibilities for what economic transactions and exchange look like. Social media companies like Facebook understand the enormous value in being the connective tissue of the social web and provider of your data and the social graph.

Facebook will continue to grow and face new challenges as it threatens the control traditional institutional structures have had over currency and personal identity. The implications of one entity owning this amount of information is beyond the scope of this article, but it certainly deserves a critical assessment. That huge privacy breach and wake up call hasn’t happened yet, so it’s not too late to ask what’s at stake when your data is contained in a digital silo owned by someone else.

30 COMMENTS ON THIS POST To “The Bank of Facebook: How will Facebook interact in the global economy?”

  1. heatherrast says:

    Definitely a thought-provoking post, and one that has me reflecting on my own online social behaviors. How am I unwittingly contributing to the evolution and rise of a new socialized economy? I prefer to be intentional and leave the dawning realizations for less significant issues.

    With all the good reading here, one underpinning struck me: “Money is a tool we use for arms-length transactions, where there isn’t an assumption of any kind of relationship or trust between parties.” I’m interested in better understanding the author’s perspective. I lean toward disagreeing, as it applies to brands that are important to me (perhaps price point plays a role in some instances, relative to category). For instance, the brand of vehicle I drive is very significant to me because its come to represent quality and durability; I trust the image framed in my mind. Also, a recent purchase of a high end computer – I committed to stepping up because I believe (and historical use supports) that this model will outperform and outlast a low-price leader.

    Trust is a strong emotion, one that can override rational thought and action. While not true across all categories and products, I think the state of the economy (lingering?) still triggers many to make purchasing decisions based on trust because, well, we can’t afford not to. In my mind, one of the very reasons customer-centered strategies can help brands overcome the tide of price sensitivity.

    I realize this wasn’t the thrust of the thesis here, thanks for indulging me. Enjoyed the piece.

    • Dave Doolin says:

      Heather, while my online social behavior never descended to the depths of usenet trolldom (I go back that far), I’m now a bit more circumspect about both what I say and how I say it.

      I’m seeing it as a “return to good manners” where the brief 10-15 years of relative anonymity of the early internet and web will ultimately be seen as a social aberration.

      For example, the old chestnut “If you can’t something good, don’t say anything at all” seems now even more than good manners. It’s good business.

      I don’t know if a return to reticence is a good thing or a bad thing. Probably a little of both.

    • heatherrast says:

      So very well said, Dave. I agree. Thank you for adding your thoughts!

    • Leland says:

      Heather please transfer some reputation currency to me. I could be one of the first “reputation beggars” on the internet! ^_^

    • hi heather,

      i guess what i meant by the money comment is that money seems to remove us from having to put too much effort in awareness about the process involved in buying a product/service or from needing any kind of moral/ethical involvement in decision-making.

      so say you want to buy a pair of shoes, and you’re willing to pay $50 for them. there hasn’t really been a way to know what exactly is involved in the making of that shoe, and we could care less. we know that we want to pay $50, we perceive a certain level of quality comes at that price point, we buy, and that’s that.

      well, what happens when this whole new range of metrics becomes available to us that carries as much weight (if not more) in the decision making process than cost. what if the decision comes down to 2 pairs of shoes, both costing $50. but then you can look at a bunch of other scoring metrics that influence that decision. so perhaps you could not only see the opinions/recommendations of others about those products, but you could drill down to where the item was assembled/manufactured, the wages paid to the person assembling them, the carbon footprint generated in order to transport that item in all the steps along the supply chain. what happens when these things really matter to people, and that when they make that purchasing decision, they post on their wall or in a status update that they’re making a choice based on a range of currencies beyond just monetary cost. what i see this as potentially leading to is an economy based on sustaining healthy ecosystems instead of exploitative ones.

      on a peer-to-peer level, i think the human capital & reputation currencies are going to get really interesting as they become more granular. so we already understand the power of word of mouth, and the value of having a high quality social network in order to build relationships and find opportunities. i think we’ll start seeing a wider range of ways for people to express their skills, knowledge, capabilities, craftsmanship, expertise, interpersonal skills, and other forms of intangible capital, and for others to be able to vouch for these things.

      so i see this as becoming the 21st century resume – except it’s not this static document that you yourself construct, which is easily fabricated and not really all that contextual – instead it’s this living real-time set of metrics about who you are and what you know and what you’re able to do and how others perceive these things, and how they have assessed them based on past performance or interacting directly with you or with the things you produce.

      so when you put yourself out there at this level, there’s more at stake if you’re not authentic about yourself, and it will damage your ability to exchange value with others. and so i see the opportunity for more of a free-market economy when this kind of information is transparent. in a sense, you become the currency.

      though this is not palatable for everyone, this stuff is already happening and plenty of people are willing to engage in this way. there are a lot of online marketplaces that exist where exchange happens based on currencies other than money, and that requires a degree of risk and faith/trust and also a vetting process on the part of the individual.

      so for example, maybe i need some coding done to customize my website, and you offer that service, and you want help doing outreach and a promotional campaign, and i offer that service. if there was a range of information available about each other in terms of our professionalism, quality of work, personality, etc etc – do we need to exchange money in order to give each other those services, or are our reputation currencies enough to facilitate that transaction? if we choose to engage that way, neither of us can really afford to screw each other or do a bad job, because that failure lowers our currency and ability to leverage it.

      now imagine when a whole marketplace like this exists, and you’re able to essentially create economic value with others for “free” …. not really free, but just a different kind of money. one that’s not arm’s length, because it does require a larger investment of oneself in the transaction that’s deeper than exchanging little pieces of green paper.

      anyway – sorry for super long response, but this is something that i completely see emerging and it’s not immediately apparent, and definitely requires a different approach to interaction and some social engineering and behavior change. i don’t think money as we know it is going to go away (at least no time soon), but i do see this parallel infrastructure arising so that even in a recession when we feel like we can’t do anything because we don’t have enough money, we flip the paradigm and see that we actually have a lot of wealth and resources to trade on, it’s just a matter of having the intention to do it that way and the creativity to make those currencies transparent, measurable, and tradeable.

      – venessa

  2. AlanParrish says:

    Very interesting post. It will be fascinating to watch the commercial transactions evolve in the social networks. I disagree that “there isn’t an assumption of any kind of relationship or trust between parties.” Whether we exchange credits or money, we do so because we trust it’s worth the trade-off. And these trade-offs are very subjective. If people trust that the subjective value they receive from the other player is greater than the subjective cost, they may perform the transaction. Maybe. As we all know, these transactions are not always rational. The relationship between parties may not be close, but each must trust the system (and the other player) will deliver.

    There are a lot of factors (security, privacy, etc…) to consider, but if the trade-offs are worth it, we may see a whole new world of commerce.

  3. Rodrigo Mazzo Iturriaha says:

    Awsome article… thanks

  4. Leland says:

    Wow… i almost wish that this article was broken up into several so it was easier to digest. 🙂

    Reputation is definitely a valuable currency, and in the future, it will only get more visible and valuable. Already, many jobs rely on how much “reputational currency” someone has. Think about VCs… entrepreneurs… consultants… and many others. The more reputation each of these people has, the more money they will make and success they will obtain. Sure, you can’t directly transfer this reputational currency, but you *can* use it and you also can indirectly transfer it.

    Really exciting times ahead of us. I would suggest every start bolstering their online presence.

  5. Dcho says:

    I’m not sure whether to be scared or excited by this article. No matter as like with all new technologies, I’ll embrace it while keeping one eye open. It’ll be interesting to see how it plays out. With my dealings in the financial services industry, there are talks about banks especially credit unions having web pages and interactions that look more and more like Facebook. Or at the minimum, they’re looking at have a good FB presence. So it’s interesting to hear about FB becoming a bank.

    On the last comment about what the consequences there might be…one only has to look at the most recent Epsilon case.

  6. Ivan Walsh says:

    Hi Brian,

    If I owned Facebook…. I’d create a virtual currency (maybe like what they used on Second Life) and push it thru it’s ecommerce channels, it could be very powerful once it gained traction.



  7. Mikey Ames says:

    Thanks for the in-depth article here. Really thought provoking. The social online world doesn’t really operate like the “real” world, so it is plausible that our idea of currency could change within our lifetime.

  8. Venessa you have correctly identified Facebook credits as one of the most disruptive technologies of our generation, at least I hope that is the case. For 20 years the Internet has relentlessly conditioned consumers to expect all art, literature, music, software, movies and other creative endeavors to be delivered for free. In short, the economics of the Internet is broken and the long awaited promise of an alternative economic model has never emerged. Until now.

    Facebook is now re-conditioning people to spend for value received. This is encouraging from a business perspective. While it might start with virtual crops, it is short leap to imagine people dropping a few Facebook credits for a useful blog post or an independent short film on You Tube.

    In the end, Facebook’s biggest contribution to our culture might be turning the psychological tide of “free” and finally fullfilling an Internet promise of an online economy where many types of creative output can flourish.

    Thanks for the post!

  9. Great read! : ) The more times a currency can be exchanged the stronger the economy. My gut says Facebook can make this fun and easy to do. It could be quite disruptive to other global exchanges. Wonder if this is another reason GS invested in Facebook?

  10. C3 says:

    no no no. there is no community without commerce. Kevin Kelley is 180 degrees wrong:)
    The generation using facebook is the most brainwashed consumers of the shiny–ever.

    Amazon is a CHEAP bookstore… EBAY a bargain pricer to buy stuff, an “opportunity” to sell stuff otherwise tossed int he dump in previous decades.. SKYPE proved that NO ONE wanted “community” they wanted cheap deals to buy, and high prices to sell at.

    Secondf Lifes “lindens” offered all the pyramid schemes and scams possible with a faux currency… that even found its way to being “banned” from paypal— owned by ebay for the worse for the ebay sellers.—

    private money? yes im sure itll be real web3.0 buzz… but in the long run, corporate town money ends up screwing the little guy..always.

  11. This is evolution in full swing. If FB do evolve into a virtual bank, it will happen so subtle that we don’t even realize it, but even more, we wont even realize the consequences of our actions, right now, when this new reality dawned on us. We cannot see into the future and as much as we would like to, we will only have a limited view of the future.

    In the words of Albert Einstein: “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”

    All decisions have consequences. They work for both the best and the worst. But when we are there we will have to think differently about how to solve them.

    But for now the most important thing to remember is that the greatest gift we have is the freedom to choose. We choose what we want to do with what we know [and dont know] and no one can ever take that away from us. The world can know everything about me and use it for my own good will or against me, but the one thing they can never do is take away my freedom to choose my reaction towards it…

    Thats what I think…

  12. Переводчик says:

    Брайан, допиши в своем профайле, что ты не только социолог и футурист – ты еще и пиздабол.

  13. Keith C says:

    This whole virtual currency thing is very scary. What if your account gets shut down? What would you do? You don’t have any money anymore because it was all electronic?!?!

    Maybe Teddy K wasn’t far off in his beliefs!

  14. Dave says:

    Hm, this reminds me of the credit system that Iphone uses for buying apps – there was something in the media about people use ‘sea shells’ as a kind of currency of their apps.

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